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Russia Recovers From 26% Ad Drop Last Year With Double-Digit Growth

MediaCom's Nick Barron Sees Boom for Marketers, With Boost From 2018 World Cup

Russia displays the classic characteristics of an early-stage market, massive slumps followed by impressive recovery. Russia is booming again. You can tell because the traffic jams have reached epic proportions, October's Millionaire Fair put excess back on the agenda, and new-car sales are rocketing.

Add in the 2018 World Cup, which will ensure FIFA's World Cup sponsors have a major marketing presence here over the next eight years, and you have a country that's clearly in growth mode.

Putting an official seal on this positive state of affairs is the latest Group M analysis, which confirms the new vibrancy. Ad spending -- in dollar terms at constant exchange rates -- is forecast to be 12% ahead of 2009, with another 14.6% rise in 2011.

We're still somewhat below the peak of 2008 but that's because we had a truly horrid 2009, with Group M recording a drop of 26% in total ad spend.

Sixth member of the big five
Volatile it may be, but Russia has a crucial role for international brands -- it has effectively become the sixth member of Europe's "big five" markets. For most consumer product brands, Russia is likely to be one of the few major markets where they can expect significant growth.

There are still infrastructure problems, such as roads, rail networks and shopping malls will take time to upgrade and build, that will slow the growth of physical-goods categories such as fast-moving consumer goods (FMCG).

However, the investment in World Cup facilities (Russia promised to allow fans to travel for free between venues and has pledged $10 billion in government funding) will help accelerate the potential for these sectors.

For service brands, which need minimum infrastructure to penetrate this vast country of nine time zones and 141 million people, we see potential for almost unhindered growth.

Russia is now more than St. Petersburg and Moscow. Wealth has spread across European Russia and the commodities boom is also creating serious wealth pockets in many Siberian and Far Eastern areas.

Media auditors fret that the return of the boom also means a return to serious media inflation. But frankly, with consumer inflation also running between 7% and 9%, media cost increases of the order of 15% to 20% can in part be passed on. It's worth remembering that cost per thousand in Russia remains the lowest in Europe. It's even cheaper than the Ukraine.

Population decline
One factor that will naturally increase CPT is the long-term population decline. Unlike the other three members of the BRIC club -- Brazil, India and China -- Russia's population is decreasing, a legacy of the years of stagnation after the fall of communism when lack of confidence kept families small. By 2025 this means there will be 6 million fewer people between the ages of 16 and 24.

TV will be key in the world's largest country. The vast geography of Russia means print has the same infrastructure challenges as the FMCG brands. Radio still has quality issues, while the transparency of out of home is not all that it could be.

TV means dealing with Video International, which effectively controls the majority of the market despite laws that limit each sales point to a 35% share.

It's not an ideal situation but media ownership is a political matter that even the most vociferous lobbying from the advertising industry won't change. The positive side is that strong, well-funded media owners are able to invest in great content and deliver big audiences for our clients.

It would help if all channels recorded their gross rating points and TV ratings in the same way, and an automated media management and invoicing system would be a massive step forward. The local advertising association, AKAR, is lobbying hard for improvements in transparency but it will take time.

When it's good, it's great
Ultimately, though, Russia's media landscape is thriving, driven by an incredible volume of gossip and an economy powered by high oil and commodity prices.

If you want to do business here, you need to accept that Russia will not behave in the same way as a "Western" market. Volatility is, and will be in the near future, part of the marketing environment.

When things are bad, they are very bad, and when it's going well it goes very well. Right now it's going very well indeed. Fingers crossed, it'll keep going until the first soccer ball is kicked.

ABOUT THE AUTHOR

Nick Barron is CEO of MediaCom for Russia, Ukraine and the other former Soviet republics.